Archive for October, 2012

October 15, 2012

To the Greek goverment…and not only. Can you please listen?

We monitor, for over two years now, the situation in Greece, one of the the richest currently fields of institutional metamorphosis and the institutional changes as they happen.

Institutions are, by nature, modular entities not dissimilar to organic proteins and which societies combine together to create new complex institutions, while others acting like enzymes catalyse/forge change causing modifications in belief systems.

Based on the above definition Politics, being an institution, undergoes rapid changes across the Globe and even faster ones in Greece, Spain, Italy, Egypt, Libya etc.

We studied in detail all political manifestos in Greece as they evolve (based on the new developing belief system) and several of them appear to be following viable paths towards a stable meta-economic framework within an environment affected by global influences however each one in its own apospasmatic way.

So, with the hypothesis of political ethos and integrity after the last elections almost a given, we are writing to you in order to propose a very simple solution to some of the Greek problems, which can be implemented immediately.

The way we approached  the solution, coming from a non-economic bounded theoretical framework, but instead a sociological one, allowed us to identify the  institutional root causes of the current problems in Greece and their  supporting mechanisms. Thankfully they appear all to derive from the same one which means that altering the nature of this supporting mechanism one may introduce eventually the desired change.

We acknowledge that the proposition is both radical and unconventional. To counteract the  expected scepticism, we tested it as a hypothesis within the current economic theoretical framework and it proved to be a solid proposition with minimum (at a national scale) social disturbance.

We will not attempt to present the whole analysis in this text even if we are ready to demonstrate it if needed. Instead we will move straight to the point starting from the potential  benefits of the solution which are simply  extraordinary. A small selection of them is listed below.

  • Eliminate the Greek government debt in less then 4.5 years after full implementation (based on current projections on the size of tax evasions)
  • Combat in its totality tax evasion within 12 months from implementation and brings a minimum of 18bn and a maximum of 52bn per year (in subsequent years) of additional taxes without the need for any additional taxation on any sector of the economy.
  • Refinance the Banks without the need for any additional loans within a maximum period of 18 months with at least 18bn (93% probability)
  • Elimination of most of the  black markets (85% within a year from implementation)
  • Eliminate corruption in the public sector (immediately)
  • Decrease street crime, robberies etc.  by more then 70% within a year of implementation
  • Eradicate within 12 months from implementation illegal migration towards Greece (not the transit one though)
  • Eliminate money laundering to a significant extend
  • Eradicate drugs trade within Greece within 36 months
  • Eradicate people trafficking and with it, illegal working and prostitution

In addition secondary effects will cause:

  • Capital repatriation
  • Additional available capital in the Banks for loans
  • Ability to accurately plan fiscal policies due to taxation revenue certainty
  • Increase the GDP and the ability of the country to borrow (if ever this will be necessary)
  • Provide the government with all arguments needed to modify the existing fiscal treaty
  • Eradicate the hysterisis  in ΦΠΑ (VAT) returns bringing the revenue in real time
  • Elimination of the need for tax and ΦΠΑ (VAT) returns from citizens and companies

So, what this solution consists of?

The total abandonment of all forms of paper money and coins across the country in favour of  a paperless e-currency in the form of contact-less debit (not credit) cards in conjunction with fingerprint recognition technologies or any other similar secure technologies.

We cannot emphasise enough the fact that partial implementation of the proposed solution will have no effect.

These (the debit cards) can be issued by any bank and should be free from monthly  or usage charges. Overdraft facilities should be at the discretion of every Bank to issue or the can be regulated by the central bank of Greece. Every adult citizen will be required to have a personal account (in his chosen bank) corresponding to his national insurance number (ΑΦΜ) from the age of 15 (?), while younger members can share their parents accounts and own debit cards in the name of their parents with a predefined upper limit.

The technology is mature and already in place at a minute cost  while mobile phones can play the role of tills. All recorded transactions either through the mobile phones or bank accounts will feed into a central IT tax backbone system. The Existing Greek one to our knowledge can accept this load with minor modifications.

It goes beyond saying that the transition needs to be managed robustly, however with given the successful transition from Drachma to Euro, in the past,  the expertise already exists within the country. The difference in this case will be in the additional amount of technology needed.

The whole approach do not violates to our understanding  any articles of the Greek constitution  or any personal freedom acts or European regulations for that reason (we went though all relevant one’s).

Tourist or businessman visiting the country will be required to use their own credit or debit cards, travellers checks and prepaid cards.

Policing against the influx of  illegal money from abroad will take some planning to be achieved and to our calculations based on previous research will be never eradicated completely. One should expect that anything from 0.3 to 3% of the current black markets will be able to retain funding. The best way to control these amounts is by offering incentives to  the citizens, traders and companies in the use of paperless money, by adjusting the taxation system.

Incentives should be offered as well in order to avoid citizens and groups holding onto paper currency for future illegal use. A possible solution will be in agreement with all European banks to destroy all Greek Euros within an agreed period.

The use of gold or other valuable metals is expected to increase initially, in order  to counteract the lack of cash by the black market, the illegal trade and the drugs traders. However based on global standards the amount of gold available for the Greek market, in private hands, cannot last more then 36 months being in decline from day one.

We anticipate as well an attempt from all types of outlaw operatives to try to utilise prepaid tourist debit cards, prepaid mobile cards or even stamps as alternative currency to avoid detection of their illegal transactions. All of the above can be counteracted by simple regulations (i.e. replacing stamps with bar codes that contain one’s ΑΦΜ.) and we expect the groups controlling the black market to migrate soon after in other countries, which will be easier  then  battling policing methods and the rising cost of money laundering.

We expect as well a rise in the creation of offshore companies and foreign accounts where transaction between them will evade monitoring . However the existing and new coming regulation within Greece and from the EU we believe are adequate to capture the majority of the initial attempts to bypass the enforced transparency in transactions while at a later stage and after the reactions have been studied thoroughly new regulations or bills can be introduced.

Overall we strongly believe that the benefits far outnumber the initial problems and in any case this proposition, despite its unusual nature and the possible reactions it will cause, is by far more realistic and just then everything proposed thus far.

One should think of the thief that cannot sell his illegally acquired goods, the public servant that cannot ask for a bribe, the illegal immigrant that cannot be paid an days work, the businessman that cannot evade the national insurance contributions towards  his employees, the elder that is not afraid to go out in case he is mugged, the abandonment of the idea for additional salary reductions, the money influx into the economy or the ability to have a debt free Greece within 5 years, in order to dismiss any initial “discomfort” this solution may cause to one’s belief system.

Institutional change is a complex undertaking so we analysed it using similar studied institutional actors’ reactions that appeared on very similar in nature issues. The type of arguments that will/may  be used against the proposition by those that consciously or subconsciously (involuntary resistance to change) will try to oppose it are listed below. These arguments we expect to mainly instigated by the following institutions:

  • The church
  • The street markets
  • Hospitality and
  • The black markets

and they will be based on these generic arguments:

  1. Difficulty to implement
  2. Difficulty to police
  3. Will create unemployment due to the closure as unnecessary of all tax offices but the central governance and IT services
  4. Will leave unemployed all private accounting firms and sole accountants
  5. It will increase poverty levels to the very poor, beggars who depend on the black economy for survival
  6. It will be extremely hard to the drug addicts and will increase the cost to the Health System
  7. It will be a shock to the market which is used to be subsidised by the black economy
  8. The European Union may not approve
  9. The elderly will have problem to adjust
  10. The technology to support it will cost a lot
  11. It will affect tourism
  12. It is a “capitalist” trick to control money flow
  13. The market is not ready for it
  14. The “Banks” are behind it

Counterarguments for the above are:

  1. Implementation can be as short as nine (9) months only (mainly dependant on the mechanisms the government will put in place to collect all currencies currently in the market)
  2. We where doing it in the past when there was a need to manage foreign currency in the country. In addition technology now is at its best to counter any attempt to illegal circulation
  3. There are already plan in place for the transition of civil servants to other parts of government
  4. Additional jobs will be created within the banks and the public sector which at last will have capital to expand
  5. Barter will be able to substitute immediate needs in conjunction with an improved social provision that the country will be able to afford
  6. This is a benefit and not a negative argument and actually the cost to the Health System long term will drop to near zero
  7. That is true but it will take less than 18 months and then the market will adjust. (see at the implementation of the tills)
  8. That is equally true but it up to us to sell the arguments. We anticipate that if it will proposed as a reversible if fail  situation or an experiment towards a paperless money economy in the EU it will be accepted. In any case  we believe that they do not have to offer a better solution.
  9. That is not true contact-less technology in conjunction with fingerprint identification will be easier then the transition from Drachma to Euro (see Korean studies on e-currency)
  10. It will cost less the $12 per unit, provided a mobile phone exists and in any case that cost can be taken on by the Banking system
  11. Tourists in Greece will be able to use their own credit or debit cards as well as prepaid debit cards issue at all ports or entry points or their countries provided that they are e-linked to their National Insurance Number and their passport or their ID.
  12. An educated person can distinguish easily between fiat money and e-currency
  13. One needs to look at the trends in the use of e-currency to counteract this
  14. The exact opposite is true. Despite the fact that they will welcome the measure they know that will never again be able to control money supply as they used to returning this way the control to the Central Bank

We have seen the reaction of others (control groups) when the idea was introduced/tested initially and we are aware of the people’s tendency to dismiss ideas that do not “connect” with their belief system. Human nature  favours stability by resisting change. However we believe that you will give the idea due consideration and discuss its practicality and possible impact with other intellectuals you trust.

If nothing else there is no other proposition on the table currently, and believe us we monitor the situation in Greece very carefully, to offer equal benefits. Utilisation of fiscal/monetary solutions within the existing economic framework failed us so far and they will keep doing so, due to the nature of the Greek economy and the expected duration needed to return to growth,  as they ignore the needed management of institutional change.

Finally, in case the government or your party lack institutional analysts to perform any institutional impact analysis ,you may wish to undertake, until such a proposition was put forward, we would like to offer our assistance.

We are happy as well to disclose our findings as well as the methodology used to calculate the amounts and the time needed for any of the suggested effects to materialise, even if we believe that it would be better to be tested by people you trust. We have very many excellent scientists in Greece that can perform these type of economic simulation.

On Behalf of the Gaianomy Think Tank

Sotiris Melioumis Organisational Architect

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